Europe: Shares lifted by late surge in Deutsche Bank

[LONDON] European shares closed higher on Friday, lifted by a late surge in Deutsche Bank after a media report that it was close to settling with US authorities over alleged misselling of mortgage-backed securities.

The pan-European Stoxx 600 index ended 0.1 per cent higher, as Deutsche Bank closed up 6.4 per cent, rallying towards the end of the European trading session having initially sunk to record lows of below 10 euros at the start of the day.

Traders cited a report by Agence France Presse that Deutsche Bank was near a US$5.4 billion settlement with US authorities over the mortgage-backed securities affair as contributing to the spike in the company's shares.

That would be considerably less than the US$14 billion demanded by the US Department of Justice.

Deutsche Bank declined to comment on the media report. In spite of Friday's recovery, Deutsche Bank shares remain near record lows and are down nearly 50 per cent so far in 2016.

Earlier, US investment bank JP Morgan also estimated the US fine could be reduced to US$5.4 billion. But it said Deutsche would not have enough current reserves to pay a fine that was more than US$4 billion and would have to raise more capital if so.

Morgan Stanley estimated Deutsche Bank could reach a US$6 billion settlement over the affair, and could agree on a deal before November's US presidential election.

Several traders expressed relief at signs that Deutsche Bank could be near a deal with US authorities.

Clairinvest fund manager Ion-Marc Valahu added he did not have concerns over Deutsche Bank's financial position, given how Deutsche Bank and other euro zone lenders have access to the European Central Bank's 'LTRO' liquidity programmes.

"They are well capitalised. They have access to the LTROs, so I'm not concerned about their liquidity, and you should not underestimate politicians' ability to strike a deal," said Mr Valahu, who has a "long" position betting on further gains in the Stoxx Europe 600 Bank index.

The Deutsche Bank rally enabled Germany's benchmark DAX index to end one per cent higher, with the DAX also boosted by gains at chipmakers Infineon and Dialog Semiconductor, which were lifted by merger speculation within the sector.

However, Spanish telecoms group Telefonica fell 4 per cent as the company cancelled the stock market listing of its Telxius business.

German bank Commerzbank also dipped 1.2 per cent on uncertainty over whether it could deliver on restructuring plans, which will see it axe thousands of jobs in a bid to boost earnings.

Alessandro Balsotti, portfolio manager at JCI Capital in Milan, said the health of European banks - with Italian banks hit by concerns over bad debts - remained a cause for concern.

"The systemic risk of European banks continues to be the most important risk for all markets," he said.

The Stoxx 600 index remains down by around 6 per cent so far in 2016.

REUTERS